New London - Police Chief Margaret Ackley will remain the city's top cop even though she has threatened to sue the city and has made allegations that a former city councilor meddled in the department and tried to undermine her authority.

Mayor Daryl Justin Finizio announced Wednesday a restructuring of the management of the police department, which includes a contract for Ackley and the retirement of several senior members of the department. Retirement negotiations are under way and will be announced shortly, he said.

Meanwhile, Deputy Chief Marshall Segar, a 21-year veteran of the department, was told his one-year contract was not being renewed. His last day was Wednesday.

An officer in the department, who asked not to be identified because he "might be next," said everyone was stunned by the announcement.

"He was the smartest person in the department,'' the officer said of Segar.

The shake-up in the police department was among several announcements Wednesday from the mayor's office.

Finizio said he will not release a report by a former Superior Court judge - whom the City Council hired last October to investigate Ackley's allegations against Michael Buscetto III - because of attorney-client privilege and ongoing settlement discussions.

The City Council asked the city attorney Tuesday for a copy but was told the report was given to the mayor, who would be the one to release it.

Council President Michael Passero said he was confident the council will receive the report and said he intends to make it available to the public when it does.

"He'll be releasing it,'' Passero said. "He (Finizio) has no right highjacking that report."

In October, the council authorized the law director to hire a third-party investigator to check Ackley's claims and give an unbiased report. Beverly Hodgson was contracted to look into the allegations.

"We commissioned the document. We directed the law director to give it back to us,'' Passero said. "He has a legal obligation to give it to us now."

Finizio said the finished report is confidential because it is part of attorney-client privilege as well as part of pending litigation. Hodgson was hired as an analyst by the law director, and the documents are part of a working file, he said.

When asked when a notice of "intent to sue" was filed, Finizio said he had no comment.

"Settlement discussions are ongoing, and we will not be releasing it at this time,'' Finizio said.

Ackley said publicly last summer that Buscetto, who was running for mayor at the time, was trying to undermine her authority as police chief. A list of specific complaints was given to the law director but was never made public.

The Day filed a Freedom of Information request to obtain the document, which the city denied. The Day's complaint to the Freedom of Information Commission is pending.

Buscetto said Wednesday he has always welcomed an investigation and he, too, wants the report made public.

"From the beginning of these accusations, I've always stated they were done in a vindictive manner," he said. "This has been a smear campaign from the beginning between the mayor and the chief.

"They used it as a campaign tool to discredit my candidacy,'' he said. "It cost me the election and unfortunately, the mayor's and chief's actions are going to cost the city."

Former City Councilor Rob Pero, who was on the council when Ackley brought her complaints to the council and who voted for the independent investigation, said the report should be released.

"It was such a public discussion, in many ways,'' Pero, also a candidate for mayor last fall, said Wednesday. "There were public accusations, public discussions and a public election that indirectly centered around these allegations. Now we have a mayor, who commented at the time that there should be an investigation, and he does not want to release it? All this stuff should be public."

'I wish the department best of luck'

Segar, who served seven terms as police union president, became deputy chief two years ago when Ackley took over the 96-member department.

"I'm a contract employee. They decided not to renew my contract,'' Segar said Wednesday, adding that he did not know his contract was not going to be renewed. He said he was told the department was being restructured.

Segar was the department's spokesman and occasionally filled in for Santa Claus at local Christmas parties for children. He has a bachelor's degree in government and public policy and is a practicing attorney who was admitted to the Connecticut Bar Association in February 2009.

He is also an Army veteran who served in Europe and in Operation Desert Storm.

"I did not expect it, but I wish the department best of luck,'' he said. "I want to make sure the department moves forward."

He said he will pursue his law practice and spend more time with his family.

Under her "employment agreement," Ackley will earn $110,725 a year, about $3,000 more than her current salary, and will be allowed to accrue and take "reasonable amount of compensatory time off subject to the review of the Mayor.''